New Proposal For Student Loans Would Help Get More Financial Relief

This congresswoman wants to expand protections for student loan borrowers who were left out of the CARES Act.

Here’s what you need to know.

Student Loans

Rep. Elise Stefanik (R-NY) introduced new congressional legislation that would expand protections for student loan borrowers who do not benefit under the CARES Act, which is the $2 trillion stimulus package. The bi-partisan bill proposal, known as the Equity in Student Loan Relief Act, would make student loan borrowers with Federal Family Education Loan (FFEL) loans eligible for the benefits afforded under the CARES Act.

“While the CARES Act lifted the weight of student loan payments from millions of Americans whose lives have been disrupted by the COVID-19 crisis, too many borrowers are still being left behind,” Stefanik said. “All students who have federal student loans should have their monthly payments suspended, no matter which type of loan they have or when they borrowed the money.”

Why are these borrowers left out of the CARES Act?

Among other benefits, the CARES Act provides several protections for federal student loan borrowers through September 30, 2020, including:

However, “federal student loans” only includes federal student loans that are owned by the U.S. Department of Education. This excludes other type of federal student loans that are not owned by the federal government. For example, the two most common are FFEL Loans, which were issued prior to 2010 by financial institutions such as banks, and Perkins Loans, which are typically owned by colleges and universities. If you have a FFEL or Perkins loan, these loans would not qualify under the CARES Act. Stefanik’s legislation would make FFEL Loans effectively “count” as federal student loans for purposes of the CARES Act. If signed into law, the legislation could help approximately 12 million borrowers with FFEL Loans, according to the latest student loan debt statistics.

How It Works

The Equity in Student Loan Relief Act, which is only a legislative proposal and not law, would works like this:

• the U.S. Department of Education, led by Betsy DeVos, would enter into agreements with the owners of the FFEL Loans.
• The agreements would stipulate that all student loan payments would be suspended through September 30, 2020.
• The Education Department would pay any interest payments during this period.
• All involuntary student loan debt collection also would cease during this period.

Similar to the CARES Act, FFEL borrowers would be notified within 15 days of these changes, and also would receive at least six notices before regular student loan payments would return after September 30, 2020. The legislative proposal also would, similar to the CARES Act, “count” non-payment of FFEL Loans toward student loan forgiveness programs. However, it’s worth noting that currently, to qualify under the Public Service Loan Forgiveness program, for example, a borrower with an FFEL Loan first must consolidate their FFEL Loans into a Direct Consolidation Loan before any of the required 120 monthly payments count for student loan forgiveness. It will be interesting how this new legislative provision comports with the Public Service Loan Forgiveness program so that borrowers are fully informed.